56. Moody’s utilizes a metric called a WARF score (Weighted Average Rating Factor) and D-Score (Diversification) to gauge the riskiness of the CDO Collateral
57. In calculating the WARF, each asset is given a numerical ranking, which corresponds with its rating level, and indicates that asset’s theoretical default probability over a 10 year time frame
58.
59. From a Rating Agency perspective, CRE CDOs are grouped into two general classifications; 1) CUSIP CDOs – which mainly consist of rated collateral such as CMBS and/or REIT and CREL CDOs which mostly contain unrated collateral such as whole loans, mezzanine loans and B-notes
60. Early CDOs allowed B-piece buyers and special servicers to achieve higher leverage and greater diversity in their investments. Subordinate lenders often exercise great influence on the fortune of troubled CRE loans
61.
62.
63. Non mark-to-market - No triggers that would require the borrower to post additional collateral. Significant advantage during volatile credit markets